Semiconductor designer Advanced Micro Devices (AMD 2.29%) has been swooning lately. Despite a robust price jump last Monday, AMD's stock is down more than 40% from its one-year high. With less than a week left in 2024, share prices have plunged 15% this year. Meanwhile, the S&P 500 (^GSPC 0.16%) stock market index gained 25% year to date.
Is AMD missing out on the artificial intelligence (AI) market boom, or is the stock a fantastic AI investment at these lower prices? On further review, a third option looks more correct -- AMD is a "hold" in my book.
NASDAQ: AMD
Key Data Points
AMD's modest AI market share growth
Archrival Nvidia (NVDA +0.64%) is setting the standard for AI accelerator chips and how they are used in actual computing systems, but AMD is a leading challenger to that company's dominant position.
In October's third-quarter report, AMD's data center sales rose 122% year over year to $3.5 billion. The Instinct series of AI accelerators and EPYC line of server-grade processors drove this surge, and both products play important roles in training and operating large language models (LLMs).
Granted, AMD's data center sales can't hold a candle to Nvidia's $30.8 billion in the same quarter. That's not the end of the world, though.
AMD is embracing its underdog role. The company isn't trying to set new AI standards. Instead, it makes sure its products work with the same AI software and programming techniques as Nvidia's chips. Simplifying the switch from one hardware solution to another makes it easier to win over existing Nvidia users to AMD's alternatives.
"Pretty much any model written for the standard framework, if you're running on NVIDIA, you could run it on [AMD Instinct] MI300 out of the box, day 1, and it would work," AMD's Forrest Norrod said at a recent industry conference.
And this strategy is paying dividends. AMD's data center growth outpaced Nvidia's 112% annual increase in the third quarter. In other words, AMD is gaining some ground on the larger AI chip specialist.
Has the AI boom peaked?
AMD is a significant provider of AI hardware. It's not all wine and roses, though. The soaring AI bandwagon may have surged a bit too far and too fast, and investors are taking a more critical look at this boom from a long-term perspective.
As a result, many stocks in the AI sphere have stalled or even fallen recently. Nvidia shares are up a measly 0.1% in the last month, and OpenAI partner Microsoft gained just 0.6% in the same period. Leading AI system builders Super Micro Computer and Dell dropped 7.1% and 17.2%, respectively.
And maybe it's all for the best. With the exception of Supermicro's scandal-stricken profile, none of these stocks are cheap, even after their recent price corrections. AMD has emerged as a particularly expensive option, even in comparison to notorious market darlings like Microsoft and Nvidia:
|
Valuation Metric |
AMD |
Nvidia |
Microsoft |
|---|---|---|---|
|
Price to earnings (P/E) |
112 |
54 |
36 |
|
131 |
58 |
43 |
Data was collected from Finviz on Dec. 28, 2024.
Buy AMD with caution if you do anything at all
AMD's drooping stock chart may be painful for current shareholders, but investors looking to put more of their cash to work in the market should celebrate the lower buy-in prices. In fact, AMD's volatile stock could benefit from an even sharper price correction.
Right now, the best approach to AMD's stock might be a risk-mitigation plan, such as buying in thirds or setting up a dollar-cost averaging plan. Either method can help you work around price-dip risks by grabbing more shares when they're cheap and fewer when they're pricy. That's a prudent approach when share prices are high and the direction of short-term moves is unpredictable. At the moment, I wouldn't get into AMD's stock without these robust price controls.
Long story short, I wouldn't sell AMD stock today, and I would buy it only with great caution. The third option is to simply hold the stock and not make any active moves. Most AMD investors should probably not touch this stock's buy or sell buttons until it either cools down or connects to a stronger business trend.
